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In: Accounting

Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat...

Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat covers that can be adjusted to fit nearly any small car. The company has a standard cost system in use for all of its products. According to the standards that have been set for the seat covers, the factory should work 1,040 hours each month to produce 2,080 sets of covers. The standard costs associated with this level of production are:

Total Per Set
of Covers
Direct materials $ 40,560 $ 19.50
Direct labor $ 7,280 3.50
Variable manufacturing overhead (based on direct labor-hours) $ 4,160 2.00
$ 25.00

During August, the factory worked only 600 direct labor-hours and produced 1,800 sets of covers. The following actual costs were recorded during the month:

Total Per Set
of Covers
Direct materials (5,000 yards) $ 34,200 $ 19.00
Direct labor $ 6,660 3.70
Variable manufacturing overhead $ 4,140 2.30
$ 25.00

At standard, each set of covers should require 2.5 yards of material. All of the materials purchased during the month were used in production.

Required:

1. Compute the materials price and quantity variances for August.

2. Compute the labor rate and efficiency variances for August.

3. Compute the variable overhead rate and efficiency variances for August

Solutions

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Marvel Parts, Inc.
Calculation of standard cost data Amount $ Note
Direct materials Cost Per Set of Covers                19.50 J
Yards of material required per set of covers                  2.50 K
Material Cost per yard                  7.80 L=J/K
Total set of covers           2,080.00 M
Total Hours required           1,040.00 N
Hours required per cover                  0.50 O=N/M
Direct labor Cost Per Set of Covers                  3.50 P
Hours required per cover                  0.50 See O
Labor cost per hour                  7.00 Q=P/O
Variable manufacturing overhead Per Set of Covers                  2.00 R
Hours required per cover                  0.50 See O
Variable manufacturing overhead per hour                  4.00 S=R/O
Finished Units Input per unit Input required Rate per unit Amount Note
Direct Material Variance
Standard Price allowed for Actual Output at Standard Price           1,800.00                  2.50            4,500.00                7.80           35,100.00 A
Actual Quantity of Input, at Standard Price            5,000.00                7.80           39,000.00 B
Actual Quantity of Input, at Actual Price           34,200.00 C
Quantity Variance (B-A)             3,900.00 Unfavorable
Price Variance (C-B)           (4,800.00) Favorable
Total Material Variance (C-A)              (900.00) Favorable
Direct Labor Variance
Standard Hours allowed for Actual Output at Standard Rate           1,800.00                  0.50               900.00                7.00             6,300.00 D
Actual Hours of Input, at Standard Rate               600.00                7.00             4,200.00 E
Actual Hours of Input, at Actual Rate             6,660.00 F
Efficiency Variance (E-D)           (2,100.00) Favorable
Price Variance (F-E)             2,460.00 Unfavorable
Total Labor Variance (F-D)                360.00 Unfavorable
Variable Overhead Variance
Standard Hours allowed for Actual Output at Standard Rate           1,800.00                  0.50               900.00                4.00             3,600.00 G
Actual Hours of Input, at Standard Rate               600.00                4.00             2,400.00 H
Actual Hours of Input, at Actual Rate             4,140.00 I
Variable overhead efficiency variance (H-G)           (1,200.00) Favorable
Variable overhead Rate variance (I-H)             1,740.00 Unfavorable
Variable overhead Spending variance (I-G)                540.00 Unfavorable

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